Dollar Update: Devastating for EM FX
DXY index is off -85bps in afternoon trading, but that doesn't mean the USD strength devastation is not being felt across the world.
As we said the DXY can be deceiving in terms of what it tells you about the direction of the USD around the world.
Because of the weighting of DXY Index, a move higher by the Euro against the Dollar masks Dollar strength in other places.
I tweeted out this morning that despite '13 being the year of the weaker EM FX, 2014 is starting even worse.
The Dollar is dominating EM FX as asset flows continue to pull out of more volatile politics and macro uncertainty. Turkey, Argentina, and South Africa are the extreme players today in a rout that may have started with slower China manufacturing data.
The Turkish Lira ( TRY , quote ) is now through 2.30 this morning despite the Turkish CB coming into the market to defend the currency. The Lira is now at all-time lows to the USD.
In Argentina, the Peso plunged 13.4% after a -1.4% move yesterday as it looks like the CB is finally letting the currency go. This is not over as far as I am concerned and we expect yields to spike higher. Simply, the CB cannot afford to support the currency.
This AM, the South African Rand ( ZAR , quote ) has moved though 11/USD for the first time since the teeth of the crisis in Oct 2008.
EM equities are down 2.7% today on the MSCI. It's all FX related.